Lead PI: Prof. Gregory Connor

This work package will research the time-series dynamic patterns in return distributions. We will focus on high-dimensional dynamic volatility models, building on the factor modeling approach in Connor, Korajczyk and Linton (2003), and using the rapidly growing literature on high-dimensional portfolio risk modelling. An important branch of this high-dimensional risk modelling research is investigating the time series dynamics of aggregate idiosyncratic volatility. Closely related to the dynamics of aggregate idiosyncratic volatility is the dynamics of market dispersion, which is defined as the cross-sectional volatility of returns. Market dispersion is increasingly recognized as an important portfolio risk component. For example the connection between market dispersion and traditional fund and hedge fund risk and performance.